Feb 25, 2016
Executives
Sherry Lauderback - Vice President-Investor Relations & Communications David M. Wathen - President, Chief Executive Officer & Director Robert J.
Zalupski - Chief Financial Officer
Analysts
Andrew M. Casey - Wells Fargo Securities LLC Steve Barger - KeyBanc Capital Markets, Inc.
Charles Stephen Tusa - JPMorgan Securities LLC Karen K. Lau - Deutsche Bank Securities, Inc.
Bhupender Bohra - Jefferies LLC Matt Koranda - ROTH Capital Partners Walter Scott Liptak - Seaport Global Securities LLC
Operator
Good day and welcome to the TriMas Fourth Quarter and Full Year 2015 Earnings Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Sherry Lauderback. Please go ahead, ma'am.
Sherry Lauderback - Vice President-Investor Relations & Communications
Thank you and welcome to the TriMas Corporation's fourth quarter and full year 2015 earnings call. Participating on the call today are Dave Wathen, TriMas's President and CEO; and Bob Zalupski, our Chief Financial Officer.
Dave and Bob will review TriMas's fourth quarter and full year 2015 results, as well as provide details on our 2016 outlook. After our prepared remarks, we'll open the call to your questions.
In order to assist with the review of our results, we have included the press release and PowerPoint presentation on our company website at www.trimascorp.com, under the Investors section. In addition, a replay of this call will be available later today by calling 888-203-1112 with a replay code of 4461698.
Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements.
Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website where considerably more information may be found.
I would also like to refer you to the appendix in our press release issued this morning or included as a part of this presentation, which is available on our website for the reconciliations between GAAP and non-GAAP financial measures used during this conference call. Today, the discussion on the call regarding our financial results will be on an excluding special items basis.
At this point, I would like to turn the call over to Dave Wathen, TriMas's President and CEO. Dave?
David M. Wathen - President, Chief Executive Officer & Director
Thanks, Sherry. Good morning, and thanks to everyone on this call for your interest and attention to TriMas.
As I'm sure you've heard on many other earnings calls, the external environment has become a lot tougher out there during the last quarter. In business, there are always a number of things you can't control and the economy is one of them.
However, we can control how we respond and take fast proactive actions to mitigate the impacts. I have an upbeat view of how TriMas is responding quickly and appropriately to the generally uncertain economic activity that all of us are experiencing.
These external challenges significantly impacted our top line in the fourth quarter, particularly in the energy and industrial markets. Despite our 14% sales decline in Q4, we finished 2015 with an EPS of $1.29, which is at the high end of the guidance range we shared with you during our last earnings call, demonstrating that the actions we have taken are working.
In addition, our free cash flow was more than $50 million as planned, while we continue to invest in key programs for growth and cost out. On slide five, I've updated our external view of headwinds and tailwinds.
The headwinds list is still longer than tailwinds, but that just makes it more important to fine-tune which programs we pursue and to execute well on the bright spots. We haven't yet had a full year of $30 oil, and while we have lowered our cost to try to stay ahead of the effects on our businesses, we see no signs of any kind of upturn.
The major aerospace distributors are still adjusting inventories, so we are modeled to these lower run rates. On the positive side, Boeing and Airbus have build rates climbing a few percent in 2016 and more in 2017.
Our Packaging growth in China is more about share gain with multi-national customers selling there, so the impact of uncertainty in China is muted for us. Moving on to slide six.
Five months ago, we announced our financial improvement plan to reduce structural costs in each business and in headquarters, given soft markets. A few weeks ago, we increased our targeted annual cost savings by 50% to $22 million to be sure we stay ahead of market conditions and align our cost structures with expected demand levels.
We have made some difficult decisions, while doing our best to maintain the capabilities needed by our customers now and for key future programs. I will now discuss a few other key initiatives listed on slide seven.
In January, Bob and I attended our Packaging business's global planning meeting. I'm encouraged by the progress being made in re-configuring the business's front-end, utilizing the new global innovation centers for solving customers' needs and continuing to improve the global manufacturing footprint.
The pipeline for new products and customer opportunities is robust, and I feel like we are positioned well for growth in 2016 and beyond. Our Aerospace business now operates as one global platform in fasteners, continuing to leverage the talented people we have added to this business over the past 18 months.
We have seen improvements in market as we drive synergies and operational efficiencies in this business, and we expect this trend to continue. In addition, we are integrating our recent acquisition of the machine components facility in Arizona.
In Energy, we are focused on restructuring and improving all facets of the business, utilizing an experienced set of outside resources to assist in executing the plan. I lead the steering committee, which is charged with keeping the right resources in place and removing any barriers to progress.
The targeted end game is an optimized global footprint, a well-integrated supply chain, including outsourced product at optimum speed and cost, automated systems for sustainability of new processes, and most importantly, assuring that we have the right people in the right jobs with the tools they need to serve customers well and run at our targeted metrics. It's a good thing we are well underway with this restructuring program, as energy markets have only weakened in the last 12 months, which tends to disguise the significant progress being made.
I give our team credit for managing through a difficult situation. Before I turn the call over to Bob, I would like to make a few other comments on recent initiatives.
In this period of continuous improvement across TriMas, we continue to upgrade and commonize our business and information systems. We have also implemented and upgraded performance review and feedback system, and we've recently upgraded our people recruiting process but we do need to go outside for particular skills and capabilities.
And an overall comment, while we have certainly scrubbed costs and we've implemented two rounds of the financial improvement plan, that does not mean that we have cut programs for future growth and productivity. We have and will continue to invest in product development and capital expenditures with higher returns going forward.
Overall, I feel good about how we have TriMas positioned going into 2016. So now, Bob will share our financial update with you.
Robert J. Zalupski - Chief Financial Officer
Thanks, Dave. I will begin my comments by providing a brief summary of our fourth quarter results beginning on slide nine.
As Dave mentioned, we experienced incremental top-line pressure during the quarter related to macroeconomic uncertainty and weakness in our industrial end markets, in addition to the ongoing impact of continued low oil prices in our energy-facing businesses. We reported fourth quarter sales of $193 million, a decrease of nearly 14% compared to the prior year due to the following: an approximate $27 million sales decline as a result of low levels of oil related activity and more recently, the reduction of CapEx spend by certain of our downstream customers; a $10 million decline in industrial product sale within Packaging and Engineered Components as a result of overall end market weakness; and finally, a $2.4 million impact related to unfavorable currency exchange.
Organic growth, primarily in our Aerospace business and approximately $6 million of sales growth from acquisitions, only partially offset the impact of these macroeconomic challenges. As a result of these sales declines and the related lower fixed cost absorption, operating profit for the quarter was $22 million or 11.4% of sales, representing 120 basis point decline compared to Q4 2014.
Year-over-year improvements in our Aerospace business, as well as a reduction in corporate expense due primarily to lower incentive compensation attainment, helped to mitigate the impact of lower sales. We also benefited in the quarter from a $1.4 million insurance recovery related to a previously settled legal claim and an incremental year-over-year currency transaction gains of $0.9 million.
While we experienced more intense top line pressure than expected entering the quarter, these items, together with the implementation of our financial improvement plan and related cost out actions, enabled us to achieve a fourth quarter diluted EPS of $0.29 per share. Q4 2015 free cash flow was higher than the prior year and enabled us to finish within the range of our full year free cash flow guidance.
I will now move on to our 2015 full year financial results on slide 10. Overall sales decreased 2.6% to $864 million as the sales gains from organic initiatives and recent acquisitions were more than offset by the $71 million decline in our energy-facing businesses and the $13 million impact of unfavorable currency translation during the year.
Operating profit margin increased slightly to 11.8% as increases in Packaging and Aerospace, as well as a reduction in corporate expense, more than offset the reductions in Energy and Engineered Components. Despite worsening external pressures during the fourth quarter, we reported a 2015 diluted EPS of $1.29, which was at the higher end of our previously-provided guidance range.
Our financial improvement plan, launched in September, which aggressively reduced cost, enabled us to mitigate the impact of these sales declines for the full year. We achieved 2015 free cash flow of $50.8 million, also within our guidance range, which approximated 87% of net income.
We ended the year with approximately $420 million in total debt, a 33% reduction compared to $631 million at December 31, 2014, as we used the cash distribution from Horizon Global in connection with the spin transaction to reduce outstanding borrowings. Our leverage ratio was 2.8 times at December 31, and we had $127 million of cash and aggregate availability under our credit facilities.
At this point, I would like to shift gears and share a few comments on fourth quarter segment performance beginning with Packaging on slide 12. Packaging's fourth quarter sales declined 3.6% as a result of weakness in its industrial end markets and the impact of unfavorable currency exchange.
Packaging reported a Q4 operating profit margin of 25%, as lower material cost increased productivity in cost reduction actions, partially offset the impact of lower sales and growth investments. We believe Packaging will continue to achieve its targeted margin range of 22% to 24%, while funding ongoing initiatives such as the new customer innovation center in India, and the ramp up of lower cost manufacturing capacity in Asia.
Turning to slide 13, Aerospace sales increased primarily due to the prior acquisition of Allfast and the November 2015 acquisition of a machined components facility from Parker Hannifin. We continue to experience higher demand from our large OE customers, which was partially offset by lower demand from our largest distribution customers.
Compared to the prior year, Q4 operating profit margin expanded 450 basis points due to improved leverage as a result of increased sales in a more favorable product mix, as well as the impact of ongoing productivity initiatives. Aerospace continues to perform at higher sales and margin rates than 2014, and is focused on additional integration activities to operate as a single combined Aerospace platform in order to better serve customers and realize synergies.
Now moving on to slide 14, Energy. Energy experienced relatively flat sales levels through the first nine months of 2015, as sales gains with downstream customers and project-related business offset lower sales experienced in the upstream oil and gas portion of its business.
However, Q4 sales declined 21% year-over-year as large refinery and petrochemical customers reduced spending related to maintenance activities and we experienced continued low demand from upstream customers, as well as the impact of unfavorable currency exchange. Energy incurred an operating loss of $2.3 million in the quarter as the margin impact of this sales decline and lower fixed cost absorption, as well as a charge related to a few uncollectible customer accounts were only partially offset by the $1.4 million insurance recovery and cost savings related to our restructuring efforts.
We have been reducing the fixed and variable cost structure of this business by consolidating facilities, starting up a new, lower cost manufacturing facility in Reynosa, Mexico and adding experienced resources to the leadership team. We have also launched global sourcing and inventory planning initiatives focused on lowering product cost and reducing investment in inventory.
Given these market conditions and the decline in profitability, like many oil and gas facing companies, we recorded a pre-tax, non cash, goodwill and intangible asset impairment charge in the fourth quarter of 2015 of approximately $73 million in this segment. Despite this charge, we believe this business remains positioned for earnings growth as we've reduced and optimized the fixed cost structure to current end market conditions and believe the longer term target of 10% to 12% operating profit margin is achievable when the end market recovers.
Moving on to slide 15, Engineered Components. As already discussed, we are facing significant headwinds as a result of lower oil prices, which dramatically impact the results of Arrow Engine.
With the Q4 year-over-year sales decline of nearly $16 million, Arrow's management team has aligned its cost structure with the current level of business activity to remain breakeven operating profit during the quarter. The other business in this segment, Norris Cylinder, was down approximately $8 million in sales due to weakness in industrial end markets and lower export sales.
Segment operating profit margin declined 110 basis points as compared to a year ago due to the lower sales level and fixed cost absorption, but still exceeded 15% due to the success of productivity and other cost reduction initiatives. Our focus remains on aggressively managing the cost structure in each of these businesses in response to end market demand.
Slide 16 provides a summary of our segment performance, which compares current, prior year and sequential quarterly results by segment, as well as the full year results for 2015 and 2014. It is evident that the top line pressures intensified during the fourth quarter of 2015, and as a result, we increased our financial improvement plan, targeting cost savings amounts from $15 million to $22 million on an annualized full run rate basis.
We are taking actions to hold and improve margins, but much of the operating profit benefit is being masked by the impact of revenue declines related to low oil related activity, weak industrial end markets and macroeconomic uncertainty. At this point, I will turn the call back over to Dave to discuss our 2016 outlook.
Dave?
David M. Wathen - President, Chief Executive Officer & Director
Thanks, Bob. I will now look forward and comment on 2016 outlook.
Slide 18 provides our summary of revenue growth and margin expectations by segment. Packaging growth should be driven by several new product programs in our geographic work in Asia, while the business maintains its target margin range.
We expect Aerospace revenues to increase, given the steady build rates, combined with revenue resulting from our recent acquisition on the Parker Hannifin facility. While this acquisition mixes margins down at first, we believe the many margin-enhancer projects throughout the business will keep total margins improving.
We believe Energy's revenue will continue to be impacted by reduced downstream channel spending, as well as the continued pressure in the upstream market. We are actively reviewing our less profitable sales and are willing to exit such pieces of business if there is not an ability to improve the margin levels.
We also believe you will start to see the benefits of the improvement actions already taken as we move to 2016. Engineered Components are still absorbing the oil downturn that hit in second quarter last year in our engines business.
That business has downsized costs in line with revenue, and is running at breakeven, quite an accomplishment by the folks in this business. Our cylinders business is fighting headwinds of industrial market softness and the impact of the strong US dollar on export sales, offset by several new and higher-spec products for a flat revenue year with ongoing strong margins.
In summary, we intend to grow our higher margin businesses in Packaging and Aerospace, and expand margins while mitigating external top line pressures in our Energy and Engineered Components businesses. On slide 19, we summarize our full year 2016 outlook.
Overall, we expect sales to be about the same as 2015 levels, as the growth from our many organic initiatives is expected to be essentially offset by the continued impact of low oil prices and industrial end market weakness. We expect EPS to grow between 5% and 12% in 2016, as a result of margin growth coming from restructuring and cost savings initiatives, such that we project $1.35 to $1.45 in earnings per share for 2016, excluding special items.
And we continue to target free cash flow at 100% of net income, which is approximately $60 million to $70 million in 2016. Now let me turn it over to Bob to provide some additional outlook detail and assumptions, and then I'll wrap up.
Robert J. Zalupski - Chief Financial Officer
Thank you, Dave. Slide 20 provides some additional assumptions for 2016.
We expect interest expense to increase to $14 million to $16 million in 2016 due to slightly higher interest rates as a result of having hedged the majority of our variable rate term debt beginning July 2016. We remain committed to growing our higher margin Packaging and Aerospace businesses, and accordingly, are planning capital investments approximating 4% to 5% of sales.
These investments include adding additional low cost country capacity in Packaging to grow with and serve our global customers more effectively, as well as increasing the flexibility and level of capacity in our cylinder business to better capitalize on our North American market position. We will continue to invest in tax planning strategies, but for now, we are planning an effective tax rate of 31 to 33%, as forecasted income is expected to be more heavily weighted in United States in 2016.
And finally, we expect corporate cash expense to be approximately 3% of sales meeting our longer term financial target. However, the non-cash stock compensation component will increase in 2016 as a result of resetting to the target award levels.
In 2014 and 2015, stock compensation expense was lower as a result of lower attainment on the performance-based portion of the equity awards. While this amount is reported as a corporate expense, given the plan metrics are based on consolidated TriMas results, it includes the long-term compensation amount for all eligible business unit and corporate office employees.
Moving to slide 21, it provides a preliminary view of our Q1 2016 earnings expectations. The external environment has changed significantly from the first quarter of 2015 when oil was still in the range of $40 to $50 per barrel, industrial markets were much stronger and our Aerospace business was just beginning to feel the effects of our large distribution customers' inventory reduction initiatives.
These are all significant headwinds on a year-over-year comparative basis and we are expecting sales to decline approximately 8% to 10% from Q1 2015 levels. Given these facts, we thought it might be helpful to provide color on how we see Q1 2016 on a sequential quarter basis, given we believe the macroeconomic environment in Q4 2015 is more relevant.
We expect these external conditions to persist in the first quarter 2016, with some modest sales growth over Q4, likely coming from those businesses with historical seasonality moving from Q4 to Q1, and as a result of our Aerospace acquisition. We also expect some incremental savings as a result of the additional financial improvement plan initiatives recently announced.
However, the impact of these anticipated improvements is more than offset by certain items which benefit Q4 2015, and that are not expected to recur. We expect all of this will roll up to a range of $0.24 to $0.27 EPS for the first quarter of 2016.
In summary, we believe, we have sized our business cost structures consistent with the current economic environment, and we'll begin to experience better operating leverage and fixed cost absorption as we move through the year. We also expect to benefit from some incremental revenue growth, primarily in Packaging as a result of new customer programs that we expect to launch later in the year.
I will now turn the call back to Dave, to wrap up.
David M. Wathen - President, Chief Executive Officer & Director
Thanks, Bob. Slide 22 is a reminder of our longer term financial targets that we have previously shared.
While the macroeconomic conditions may change over the time, we remain committed in TriMas to these targets, and I believe that we are showing good progress. And I know, faster progress is better.
So in summary on slide 23, it's our playbook, which includes our key areas of focus. We are committed to continuous improvement throughout TriMas measured by margin enhancement, improved ROIC, customer satisfaction and retention of our people.
We will also consider value accretive bolt-on acquisitions, particularly in Packaging and Aerospace. But multiples are currently quite high, partly because organic growth is quite difficult to achieve.
We'll keep at it, though, as we have a good track record of finding bolt-ons with significant synergy opportunities. In closing, I believe we have accomplished much during 2015 to improve our company.
We invested in our higher growth and higher margin businesses to position us for the future and completely spin off subsequent. We have mitigated many of the external pressures that aggressively reduced our cost structure for margin expansion.
I am optimistic about our ability to improve and increase shareholder returns as we move through 2016. Now, we will gladly take your questions.
Operator
And we'll take our first question from Andy Casey with Wells Fargo Securities.
Andrew M. Casey - Wells Fargo Securities LLC
Thanks. Good morning, everybody.
Sherry Lauderback - Vice President-Investor Relations & Communications
Good morning, Andy.
Robert J. Zalupski - Chief Financial Officer
Good morning, Andy.
Andrew M. Casey - Wells Fargo Securities LLC
Just a few questions on the guidance and then one on Energy. On the Q1 guidance, you talked about the continuation of Q4 trends.
I'm kind of trying to understand that comment. First, do you think your end markets are seeing incremental demand deterioration, or do you expect them to be kind of sequentially stable and you're just comping against kind of a difficult period in Q1 last year?
Robert J. Zalupski - Chief Financial Officer
I think that's exactly right, Andy. In the main, we expect the sales level to be reasonably consistent.
There's a couple of areas where we expect to see some modest growth due to what I'd call normal uptick as a result of seasonality, seasonality moving from Q4 to Q1.
Andrew M. Casey - Wells Fargo Securities LLC
Okay. Thanks Bob.
Robert J. Zalupski - Chief Financial Officer
Largely sticking in that same level.
Andrew M. Casey - Wells Fargo Securities LLC
Okay. And then on the 2016 – if I look at the bottom line, Q1 is expected to be below the average contribution, somewhere around to 18% versus the three-year average before that of about 22%.
And then you have the overall guidance. Part of that is pretty obviously related to the incremental savings benefits, but are you building in any end market improvement after Q1?
Meaning, is there any anticipation that second half gets better?
David M. Wathen - President, Chief Executive Officer & Director
I would not call it market improvement in the general sense. We know specific programs, for example, in Packaging, for example in Aerospace where there's a platform where the line rate's going up and we know our content.
So it's more us understanding the model of our own businesses. We're running on, with my opinion that, we don't expect any kind of a general market uptick.
I'd love it, but it's hard to find indicators in that. And so it comes down more to understanding specific programs we've got and we'd make again when the volume hits, et cetera.
Andrew M. Casey - Wells Fargo Securities LLC
Okay. Thanks, Dave.
And then within Energy, you mentioned a charge for the inability to collect receivables from some customers, and obviously that end market is kind of in some distress, but what actions are you taking, if any, to prevent recurring to that? It doesn't sound like the market's going to get appreciably better as you kind of just alluded to.
Robert J. Zalupski - Chief Financial Officer
You're exactly right, Andy. This has been on the radar screen for a while now.
And in one instance, we had a customer that ultimately declared bankruptcy. So even – despite the actions we took there in the period leading up to that bankruptcy, we nonetheless had a charge we needed to take to preserve that account.
I think on a go-forward basis it's clearly a matter of keeping after customer collections in a very meaningful way. And then also for customers who slip at all and they're ageing, reassessing their credit worthiness and adjusting terms.
And to the extent necessary, we'll go to cash on delivery if we believe there's significant risk associated with the given customer.
David M. Wathen - President, Chief Executive Officer & Director
Yeah. A management comment would be many of us are, I'll say, been around a while, and we've seen this through multiple cycles.
Well, you have to remind yourself, there's been a pretty long run without a rash of customer bankruptcies and slowdowns. We knew higher interest rates, at some point, affects it, and so we do have to be very, very clear and clean in our rules.
Because there are folks around that haven't actually lived through it as much as some of us have, and so we really – I give Bob and the division finance officers a lot of credit for cranking up our efforts. We all know how to do it, we know the process but you've got to crank up your efforts sometimes, so this is the time for it.
Andrew M. Casey - Wells Fargo Securities LLC
Okay. Just a follow-up on that quickly.
But have you gone to any mandatory cash payments for any of your customers at this point, or is that more a future state potential?
Robert J. Zalupski - Chief Financial Officer
No. We have those programs in place currently with certain customers.
Typically, it's the smaller customers, Andy, that occurs lift. Obviously, for any new customers, we'll do significant credit checks to make sure that we're comfortable extending credit into our terms to any new customers.
But I think in the main, at least this juncture has been focused at the smaller operations.
Andrew M. Casey - Wells Fargo Securities LLC
Okay. Thank you very much.
Operator
And we'll take our next question from Steve Barger with KeyBanc Capital Markets.
Steve Barger - KeyBanc Capital Markets, Inc.
Hi. Good morning, everybody.
Sherry Lauderback - Vice President-Investor Relations & Communications
Good morning.
David M. Wathen - President, Chief Executive Officer & Director
Good morning Steve.
Steve Barger - KeyBanc Capital Markets, Inc.
You talked about developing Packaging products for growing end markets, can you tell us what percentage of products go to those more favorable markets and what percentage are stable or declining?
David M. Wathen - President, Chief Executive Officer & Director
It's a business that runs – if you use new products that have a turnover, it's a 10% or 15% new products kind of a business where there's enough change that you have to change tooling and maybe it's new patents and all that kind of thing. That, in my experience, is – I mean, it's not like a software business, but in a manufacturing business that's a fairly high percentage of new product turnover.
Steve Barger - KeyBanc Capital Markets, Inc.
So obviously, some of the legacy programs have to be growing if you're projecting 4% to 8% sales. I guess the question is, what is the growth rate on the new products?
Sherry Lauderback - Vice President-Investor Relations & Communications
I don't understand the question.
Steve Barger - KeyBanc Capital Markets, Inc.
If you (35:06)
David M. Wathen - President, Chief Executive Officer & Director
My definitions of products is it's all growth when it's a new product. So, then you do have to subtract some displacement where it is replacing our old product verses somebody else's; call it half of that is growth.
You're going to wind up getting to a couple 3% of organic product growth. You're going to wind up getting to a couple 3% of, I'd call it, geographic growth where we're taking products places they haven't been before.
Because we're still in the – we reorganized the front end of the business to get better at taking our full product line every place, but we're not. We're not – we clearly haven't accomplished that across all the businesses.
Robert J. Zalupski - Chief Financial Officer
Yeah. The other comment I'd make, Steve, is a lot of the items that we would classify as new product sales or sales growth are applications of existing dispensers that are tailored to a specific customer program.
And the success or the duration of that program is really a function of how well that customer's product does ultimately in the end consumer market. So it's not new product in the sense of – I'll use automobiles as an example, where you develop a new platform and you sell it all over the world kind of thing.
Much more tailored to, I think, consumer products companies, specific marketing programs in regions of the world.
Sherry Lauderback - Vice President-Investor Relations & Communications
But I think it's fair to say about half of that 4% to 8% is kind of new product-related.
David M. Wathen - President, Chief Executive Officer & Director
Yeah.
Robert J. Zalupski - Chief Financial Officer
Yes.
David M. Wathen - President, Chief Executive Officer & Director
And then half of it is more driven by geographic moves.
Robert J. Zalupski - Chief Financial Officer
In growth. Growth in existing business.
Steve Barger - KeyBanc Capital Markets, Inc.
Got it. That's great detail.
If total CapEx to sales is 4% to 5%, what is that for Packaging? Is that higher because of the new product development?
David M. Wathen - President, Chief Executive Officer & Director
Yes, it is. We're also – remember, Packaging a business is a business that tends to run near full capacity and so periodically we have to add a plant.
And we're currently modeled to do that in 2016.
Steve Barger - KeyBanc Capital Markets, Inc.
You are adding capacity, okay.
David M. Wathen - President, Chief Executive Officer & Director
Yes. For a while you can add it by trimming the fill of an existing plant with more molding machines and maybe switching to more automation.
At some point, you need more space and we've hit that in Packaging. So we do have a new plant in 2016.
Steve Barger - KeyBanc Capital Markets, Inc.
Understood. So obviously, Packaging is the most important segment from an EBIT contribution standpoint.
Is the bigger risk to revenue and margin a slowdown in consumer in the U.S. or a slowdown in growth in emerging markets?
Or would it be a further decline in industrial? I'm just trying to frame up the risks.
Robert J. Zalupski - Chief Financial Officer
Yeah. I think if you look across those three segments it's, generally speaking, equally risky, right?
Because the margin profiles across those three you mentioned really are pretty consistent, plus, minus, a couple of three operating percent either direction. So it would – a significant downturn in any one of those areas would be painful, no question.
David M. Wathen - President, Chief Executive Officer & Director
But of course we think we've seen some industrial downturn. Consumer has remained pretty decent, as you know.
Within consumers – I mean, where do you park pharmaceuticals, where do you park cosmetics and that sort of thing? There is a good history of that demand staying quite steady, even in a genuine consumer downturn.
It's going to hit – logically, of course it hits household goods more than it hits medicine. That's one of the attractiveness of the business segment which we're in, of course, because it tends to stay a little steadier.
But we still have a big consumer business all over the world, and quite large in the U.S.
Steve Barger - KeyBanc Capital Markets, Inc.
Got it.
David M. Wathen - President, Chief Executive Officer & Director
And as you know that's been holding up.
Steve Barger - KeyBanc Capital Markets, Inc.
Yes. Yeah.
Could you – I'll just ask one more and then I'll jump back in line. Can you tell me what the cash impact of the financial improvement plan will be in 2016?
Because I think you're guiding to $60 million to $70 million, excluding the impact of that. I'm just trying to see what number is.
Robert J. Zalupski - Chief Financial Officer
Yeah. Just bear with me.
It looks to be about $4.5 billion.
Steve Barger - KeyBanc Capital Markets, Inc.
Perfect. Thanks very much.
Operator
And we will take our next question from Steve Tusa with JPMorgan.
Charles Stephen Tusa - JPMorgan Securities LLC
Hey, guys. Good morning.
Robert J. Zalupski - Chief Financial Officer
Good morning, Stephen.
Charles Stephen Tusa - JPMorgan Securities LLC
Can you just maybe give a little more color around the geographic sources and what parts of the oil and gas chain, downstream, midstream, upstream, that you have the greatest exposure on those customer charges? Just a little more color there.
David M. Wathen - President, Chief Executive Officer & Director
So you're generally talking Energy? Because I could...
Charles Stephen Tusa - JPMorgan Securities LLC
Yeah. The receivables issue, the customer solvency issues.
Robert J. Zalupski - Chief Financial Officer
It was predominately downstream customers, Stephen. I mean, that's 85% of the overall Energy business activity.
So not surprisingly that's where we would see the potential for the greatest risk. And the 15% upstream, that got hit a lot harder, a lot earlier in the year.
And so as you look at the decline in Energy sales year-over-year – actually, other than the fourth quarter down draft that we saw on the downstream side, year-to-date through September those sales were actually up and were offsetting or negating the impact of what was going on upstream. So it remains to be seen whether this fourth quarter was an aberration relative to the downstream spending, or if it's something that will continue as we move through the year.
Early indications are we're running at a reasonably consistent level in Q1 in terms of the downstream order intake that we did in Q4, but that can change as you move into the spring season that typically is a bit more higher level activity for the turnarounds.
Charles Stephen Tusa - JPMorgan Securities LLC
Got it. And then...
David M. Wathen - President, Chief Executive Officer & Director
If you ask – a different split – another split that matters on that risk profiles, much of our non-U.S. business is because we put a branch near our global customer.
And if you looked at the customer lists in that business, the top of the list are always Dow, Shell, Exxon, BP, the people you would expect. And much of our global business goes to those refineries and, obviously, in general they're strong customers.
The ones you really have to watch are the second tier, like service companies who do a lot of this outside service work for whoever it is. They're the ones you really have to watch their – watch our receivables with, as opposed to the big guys.
Charles Stephen Tusa - JPMorgan Securities LLC
Got it.
David M. Wathen - President, Chief Executive Officer & Director
And then geographically, a lot of those were in the U.S.
Charles Stephen Tusa - JPMorgan Securities LLC
That makes sense. And then one more thing, you guys mentioned exports being weak and imports are more competitive, can you just talk generally about what you're seeing on pricing in your businesses?
Even outside of Energy, are you seeing any unusual in this kind of deflationary environment, pricing behavior from competitors?
David M. Wathen - President, Chief Executive Officer & Director
Yes, there's pricing pressure because everybody's so hungry for volume. The specific pricing pressure we get is when a feed commodity crops, resins and packaging, of course, has been going on for a while.
And we've got a pretty good track record of holding margin percentages, maybe even doing better during those times. But once in a while, you have to pass some of it on.
And we've talked about – some of it's contractual and some of it's negotiated. That even occurs like in this orders business, where it's the only real material is specialty steel, is alloy steel.
And steel prices are pretty darn – I don't know if they're at the bottom, but you look at history of steel price curve, and it's come down. So we get a lot of pressure for that as expected.
So I always try to figure out how much revenue do we hurt or get hurt on where we have to drop price when we hold margin percentage. It's a hard number to really get at, because there's so many transactions.
But that said, there is that kind of pricing pressure for sure, and no let up in it.
Charles Stephen Tusa - JPMorgan Securities LLC
What was price in the quarter for you guys on top line pricing?
David M. Wathen - President, Chief Executive Officer & Director
Yeah...
Robert J. Zalupski - Chief Financial Officer
Yeah. I would say, not a lot of impact in Q4.
I think in the cylinder business we'll see some pricing effects as a result of the lower steel costs that we'll pass along to certain of the large customers.
Charles Stephen Tusa - JPMorgan Securities LLC
Okay. That's make a lot of sense.
Thanks a lot. Good luck in 2016.
Thanks.
Robert J. Zalupski - Chief Financial Officer
Thank you.
Operator
. We'll take our next question from Karen Lau with Deutsche Bank.
Karen K. Lau - Deutsche Bank Securities, Inc.
Thank you. Good morning.
David M. Wathen - President, Chief Executive Officer & Director
Good morning, Karen
Robert J. Zalupski - Chief Financial Officer
Hi, Karen.
Karen K. Lau - Deutsche Bank Securities, Inc.
Good morning. So just follow-up a little bit on pricing and Packaging.
Could you quantify how much pricing headwinds you realized last year, and what are you assuming in this 4% to 8%? Has pricing sort of stabilized in that business?
Robert J. Zalupski - Chief Financial Officer
Yeah. I don't know that I would – yeah, a little bit of a headwind, I think, as we move through 2015.
I think as we've gotten towards the end of the year, input costs have stabilized and would not anticipate this being a negative going into 2016.
Karen K. Lau - Deutsche Bank Securities, Inc.
Okay. And then I guess maybe just go back to the previous questions about the jump in growth in Packaging.
If you look at 2015, you guys did like a negative 1% for the full year, and I realized there is some currency headwinds but there's also acquisition contributions. So getting from like a flattish type of growth to 4% to 8%, is that all coming from new products or perhaps some of the programs in 2015 got pushed out into 2016?
I'm just trying to square like why – I would imagine like some of the new products and geographic expansion was ongoing in 2015 as well. So just trying to understand why the big jump in forecast growth?
Robert J. Zalupski - Chief Financial Officer
Well, I think certainly there is an element of programs which we expect that would occur in 2015 that were deferred by customers, and therefore we would anticipate that we'll get the benefit of those in 2016. I also think, though, that this transition that Dave has referenced regarding a move towards a market-facing vertical organization, that took some time in terms of getting it implemented and staffed in 2015.
So I don't know that we necessarily received the full benefit of that, and I do anticipate that, that effort along with the completion of the Indian global innovation center, that we will ramp up the rate of new product programs. And there's clearly a focus on that business in growing the top line after, as you point out, also flat year-over-year situation in 2015.
Karen K. Lau - Deutsche Bank Securities, Inc.
Okay. Makes sense.
And then just lastly, maybe on restructuring. So Energy, I think you took down your top line forecast by about 10 points previously.
You were expecting down low-single to mid-single, now down to $15 million. But you're still expecting a pretty healthy margin expansion year-over-year, so is the incremental cost savings from the $15 million run rate to $22 million is incremental so they're all going into Energy?
Maybe you can remind us how the savings are split across the segments.
Robert J. Zalupski - Chief Financial Officer
I wouldn't say that. I think the operating improvement that we're looking at for the Energy group is really just a result of what I would call operational improvements in the sense of, for example, decisions on whether we – where we manufacture or where we source product.
There's a lot of opportunity in the supply chain for us to improve our product cost structure and we're aggressively going after that. So that's one example.
I think others are – as we drive down inventories, we'll shrink our footprint a bit. And again, your fixed cost is a little bit lower in that regard, so it's less about the fit directly impacting Energy, its more about the benefits of the restructuring, just improving the effectiveness and the efficiency of that operation.
Karen K. Lau - Deutsche Bank Securities, Inc.
Okay. So the incremental $7 million, which segments is that?
How does that split across the segments?
Robert J. Zalupski - Chief Financial Officer
Its really spread much like the originally $15 million what we announced. It's pretty much equally spread over each of the businesses.
I mean, we go back to each business and we have targets. Probably the one exception might be Norris Cylinder, or I guess Engineered Components, generally, because the Arrow Engine business has really cut an incredible amount of costs to maintain its breakeven profitability, and Norris Cylinder really just has a very, very lean fixed cost structure to begin with.
So maybe they received a little bit less in terms of the target, but in the main it was equally spread amongst the other businesses.
Karen K. Lau - Deutsche Bank Securities, Inc.
Okay, got it. Thank you very much.
Operator
And we will take our next question from Bhupender Bohra with Jefferies.
Bhupender Bohra - Jefferies LLC
Hi. Good morning, guys.
David M. Wathen - President, Chief Executive Officer & Director
Good morning.
Robert J. Zalupski - Chief Financial Officer
Good morning.
Bhupender Bohra - Jefferies LLC
Good morning. So I just wanted to continue on the previous question here.
I believed you mentioned about driving down inventories, and now could you just – I mean, I'm looking at the balance sheet here. The inventories are down year-over-year.
And just give us a sense of like which businesses actually have high inventories and where you would have the opportunity to honestly take them down?
David M. Wathen - President, Chief Executive Officer & Director
I'll speak this same comment to you before. It's like you're sitting in one of our operating reviews.
I ought to take you along sometime. The Energy business does still have inventory that went up due to the dock strikes last year.
Remember those? We had 30-some container loads of product we've built in our Asian facilities that were for the U.S.
customers that we then had to build basically in Huston to serve the customers. So wound up doubled up with higher-cost product.
I keep pointing about that because it's behind us. But we still have that product to work off yet.
We're doing it aggressively. But that was a – that showed that our numbers are locked from a cost standpoint, but it also drove our inventories up.
So we've got that whole thing to work down. That's probably the big one.
The Egypt business chasing revenue down would have more turns of inventory than we'd like. But there's some burn off going on, and of course, that has a big parts business that continues to burn off, too.
I don't think there's anything else to really pops out and...
Robert J. Zalupski - Chief Financial Officer
Not being – well, I won't consider unusual, I mean, we're always striving to improve turns and reduce the investment. And so all the businesses are subject to that challenge.
Bhupender Bohra - Jefferies LLC
Okay. Okay.
The follow-on on the guidance here, just help us, how should we – I mean, you did talk about the first quarter top line being down, I think what 7%? Is that the guide?
Robert J. Zalupski - Chief Financial Officer
8% to 10% relatively.
Bhupender Bohra - Jefferies LLC
8% to 10%. Okay, 8% to 10%.
And we are ending the whole year like 2016 on Packaging up 4% to 8% with new programs coming in, can you help us – the cadence of like the first half versus second half in terms of top line, and what's actually built on the margin side in the first half versus second half here? Thank you.
Robert J. Zalupski - Chief Financial Officer
Yeah. I guess the way we're thinking about it is we clearly see the impact or the carryover of what we experienced in Q4 and our initial Q1 numbers for January.
We thought it was prudent to make sure that, that was communicated as part of this call. As we look out on the full year, however, we have revisited with each of our businesses and have looked at the assumptions underlying the growth forecast.
And at this juncture, we don't see anything that would suggest later in the year that we're not going to see some uptick in our Aerospace and Packaging businesses.
Sherry Lauderback - Vice President-Investor Relations & Communications
And while it lasts, the lower oil price are mid-year so...
David M. Wathen - President, Chief Executive Officer & Director
We've all been staring at an oil price chart to remind ourselves that oil was still at – they made one big drop early last year. But there was $60 oil in the second quarter last year.
And many people were thinking it was already swinging back up. And so I've been saying that quite often, we have to keep track of when we lap the effect of that...
Robert J. Zalupski - Chief Financial Officer
On our business.
David M. Wathen - President, Chief Executive Officer & Director
...in our business.
Bhupender Bohra - Jefferies LLC
All right. Right.
Yeah. I was talking from the Packaging and Aerospace because the growth rate kind of looks pretty high.
How should we think about the Packaging new products growth? Would that come in the first half or it's more like the kind of backend loaded growth rate?
David M. Wathen - President, Chief Executive Officer & Director
It's a pretty decent – it's a ramp going up. It's by program.
We've got both. The folks at Packaging and Aerospace model that pretty well based on new products, customer programs and how fast they convert.
And then in Aerospace, of course we have build rate forecast, when it will hit for us and all that. So there's a – we would tell you, we would give you guidance that we could see those things going on underlying.
And of course, as you well know, the math says it's Packaging and Aerospace that heads our totals. Or in this case, it's also Energy improvement.
That's on a continuing ramp also, costs coming down on fairly flat revenues.
Bhupender Bohra - Jefferies LLC
And can you remind us – yeah, go ahead.
Robert J. Zalupski - Chief Financial Officer
I'm just going to comment on the Packaging front. Fairly ratable in the sense of throughout the year, but certainly first half is a little bit lower than second half improvement.
Aerospace, other than first quarter, is pretty consistent across the remainder of the year.
Bhupender Bohra - Jefferies LLC
Okay, got it. Thanks a lot.
Operator
And we'll take our next question from Mat Koranda with ROTH Capital Partners.
Matt Koranda - ROTH Capital Partners
Good morning, guys. Just wanted to continue along the lines of the Packaging questions that have been asked, but maybe attack it from a different angle here.
I think margins, you guys have been targeting that 22% to 24% range for a while now, but you've been running in the 25% range for the last couple of quarters. So I guess the question is, are we expecting some erosion from current levels?
And does that have anything to do with the new customer programs that are rolling on or is it legacy programs? How do we kind of think about margins in Packaging for 2016?
David M. Wathen - President, Chief Executive Officer & Director
I mean, I'd stick with the 22% to 24%. We hate to give up any, but when it hits 25%, it's usually something special going on in the business.
I'd stick with that long-term 22% to 24%. We're obviously going to try to keep it at the higher range of that, but we also are willing to spend money on new plants, tech centers, new product programs and all that.
So it's a balancing act that kind of centers at 23% or 24%.
Matt Koranda - ROTH Capital Partners
Got it. Okay.
And then in terms of the Aerospace segment, I don't think this has been covered much yet, but it does look like the outlook for 2016, it looks a little bit higher relative to your prior outlook. I think at the mid-point, you're roughly at 10% versus before you were talking about maybe low to mid-single digit growth in that segment.
So how does – maybe you could just talk about the Parker facility's contribution to the growth outlook in 2016 and maybe any other granularity you'd like to get into there.
Robert J. Zalupski - Chief Financial Officer
Yeah. I mean, clearly that change, Matt, is related to expected sales level activity as a result of acquiring the Parker facility.
David M. Wathen - President, Chief Executive Officer & Director
Other than that, we haven't seen a lot of change in Aerospace. It's still on the way to ramp up, a little slower in 2016 than maybe the historical has been the last few years.
And plenty of forecast that it kicks back up in 2017, but we'll see.
Matt Koranda - ROTH Capital Partners
Okay. And one more for me here; you did mention acquisitions in the prepared remarks, but just wondering maybe in terms of the balance between Packaging and Aerospace, if you could put a little color around what you're looking at in the acquisition pipeline?
Is it skewing one way or the other in terms of what you're looking at getting done first? And just with multiples being elevated at the moment like you said, Dave, it sounds like maybe we shouldn't expect anything in the near-term.
Are those fair assumptions?
David M. Wathen - President, Chief Executive Officer & Director
Those are fair assumptions. Packaging, you might put Packaging a little ahead.
But the folks on the phone that understand our Aerospace business tried to convince me that maybe it should be Aerospace first. But that said, my judgment in that case is a little more around what do we have the management horsepower to absorb, and we're busy in Aerospace with Parker Hannifin, with the still – this fastening (01:00:18) business coming together more and more.
We've probably got a little more horsepower in Packaging to do it, so I'd probably tilt that way. But the plus, we do find in Packaging the opportunity to do a product acquisition that we should globalize.
And those are almost the only ones that are going to make sense at current multiples. And we almost need to find some special case that pulls the multiple down some or gives us a lot of synergy going in.
Multiples are tough to get over. As hard as it is to say no sometimes, that is exactly the right thing to do, and say we will come back at it another time.
Robert J. Zalupski - Chief Financial Officer
Yeah. I mean, there's been a fair amount of activity in terms of opportunities.
We, of course, look at many items but are pretty discerning as to what we're willing to pursue, particularly in light of the elevated multiples. So more to come, but a lot of interest, a lot of activity, and as you might expect, fairly competitive.
Matt Koranda - ROTH Capital Partners
Okay, very helpful guys. I'll jump back in queue here.
Thanks.
Operator
We will take our next question from Walter Liptak with Seaport Global.
Walter Scott Liptak - Seaport Global Securities LLC
Hi. Thanks.
Good morning, everyone.
Robert J. Zalupski - Chief Financial Officer
Good morning, Walt.
Walter Scott Liptak - Seaport Global Securities LLC
I wanted to ask about the balance sheet, too. What's the right debt level for you guys now looking at your debt-to-EBITDA.
And then also, kind of along the lines of the inventory and cash flow question, without acquisitions, where do you think your debt will be at the end of the year given the forecast?
Robert J. Zalupski - Chief Financial Officer
We're targeting, and I think consistently have targeted, a leverage ratio, Walt, between 1.5 EBITDA and 2 times EBITDA. And I think, if absent of there being any sort of acquisition in 2016, we get down to about 2 times by the end of year, based on free cash.
Walter Scott Liptak - Seaport Global Securities LLC
Okay. Perfect.
And I wanted to ask about just a couple of follow-ups. In the Energy business in the presentation, you call out exiting some low margin business and so I was wondering if it's possible to look at a 10% to 15% decline and break that out by price versus volume versus exited business?
David M. Wathen - President, Chief Executive Officer & Director
I don't think we're that precise yet. Part of our reason to guide to those lower – it is that we've got – we are quite serious about exiting some pieces business that aren't attractive.
And there's quite a bit of that underway, working that price versus exit versus what can we do differently and all. I don't think we're precise enough to really say what that is yet.
We'll get more precise as this year goes on. It's a relatively small piece of that decline; that's more of a market thing.
Walter Scott Liptak - Seaport Global Securities LLC
Okay. Fair.
And then I think you talked about turnarounds a couple of times; what is your outlook for turnarounds this spring, because I've heard mixed things? I don't know what your data points are telling you; are we finally going to get more turnarounds?
David M. Wathen - President, Chief Executive Officer & Director
It's a frustrating thing to forecast. You watch daily order rates and right now you might say there's some turnaround.
This is the season and there would be some coming off, but it's too early to say what it's going to look like.
Walter Scott Liptak - Seaport Global Securities LLC
Okay, great. And then you mentioned – skipping over to the Engineered Components segment, cylinders being weak and I wonder about the Airgas, Air Liquide merger, if there's any disruption related to a consolidation or a potential consolidation of those two businesses?
And then just to ask about the capacity expansion, if the market's weak, why increase capacity?
David M. Wathen - President, Chief Executive Officer & Director
That combination is quite attractive to both of them because they cover different continents. We ship to both of them and so we know very well where their strong markets are.
So there is no geographic hit with that combination. Now, I always remind myself, in every acquisition anybody does, there's a line item about purchasing synergy, which means drive prices down.
But we've got the spec and all that kind of thing. The offset to softer industrial markets is we have done a lot of work recently with some different specs trying to expand applications for some of our products.
We've had a whole lot of work that's been taking a while, but to do with precision of the thickness of walls and can we make a lighter weight cylinders that have the same capacity. And strict order as that sounds, it's been a lot of work.
And some of those things are clicking, so I am encouraged by – in spite of currency and in spite of all that, in spite of kind of weak industrial, that business is doing very, very well. It's a very attractive business.
Robert J. Zalupski - Chief Financial Officer
Yeah. And I would mention also, Walt, that while there is not significant growth top line there, that business has been operating near capacity for a few years now.
And that asset runs, essentially, 24/7. And as they shift the product mix between ISO and DOT cylinders that set ups – that takes the forge down.
So it gives a lot more flexibility to respond to differing customer order types. And so it's not just strictly a capacity play, it's about flexibility as well as efficiency in terms of your ability to meet customer orders.
Because a lot of times it's how quickly can you get the order to the customer. And if you can do it in two weeks, you get the order.
If it takes you eight weeks, maybe you don't. So part of this is about increasing the flexibility and the capability of responding more quickly to customer demands.
Walter Scott Liptak - Seaport Global Securities LLC
Okay.
David M. Wathen - President, Chief Executive Officer & Director
And I think I mentioned – but there's also a characteristic in our Huntsville plan where we make smaller size cylinders. We make some from tubing, from high pressure tubing and fabricated cylinders.
We could make those with the deep drawn cylinders out of the presses. If we have capacity on the presses, our total cost goes down to meet the same spec.
And so there's also a productivity side of this that allows us to take cost out on some other specs. So...
Walter Scott Liptak - Seaport Global Securities LLC
Okay. All right.
Great. Thank you.
David M. Wathen - President, Chief Executive Officer & Director
Those are kinds of decisions we'll have to make once in a while is, over the course of the next couple of years, what do we get out of it and what convinced us they would.
Walter Scott Liptak - Seaport Global Securities LLC
Okay. Fair.
Thanks for the color.
Operator
And we will take another question from Steve Barger with KeyBanc Capital Markets.
Steve Barger - KeyBanc Capital Markets, Inc.
Hey, thanks.
Robert J. Zalupski - Chief Financial Officer
Hey Steve.
Steve Barger - KeyBanc Capital Markets, Inc.
What is your market share in cylinders? You have most of the dominant position, right?
David M. Wathen - President, Chief Executive Officer & Director
Yes. We have a very, very strong position.
Robert J. Zalupski - Chief Financial Officer
Well certainly in North America.
David M. Wathen - President, Chief Executive Officer & Director
Sorry, in North America, just because of the shipping costs, all that sort of thing. We won an anti-dumping case that got into all kinds of stuff that we're a little cautious about spelling out exactly where we have...
Steve Barger - KeyBanc Capital Markets, Inc.
I understand. Yeah...
David M. Wathen - President, Chief Executive Officer & Director
But no, we are quite strong, as you could imagine, within our shipping distances.
Steve Barger - KeyBanc Capital Markets, Inc.
That's what I thought...
Robert J. Zalupski - Chief Financial Officer
Yeah. And clearly, as a global marketplace, there's distinct regional competitors in other parts of the world that they obviously are strong in those – in region.
And just like us, looking to export into regions outside of North America, they're obviously doing the same thing in terms of trying to export into North America.
Steve Barger - KeyBanc Capital Markets, Inc.
But the majority of your sales are in North America for cylinders?
David M. Wathen - President, Chief Executive Officer & Director
Yes.
Robert J. Zalupski - Chief Financial Officer
Yeah.
Steve Barger - KeyBanc Capital Markets, Inc.
Is that right?
Robert J. Zalupski - Chief Financial Officer
But notwithstanding that in our dominant position is it's a pretty competitive marketplace, both here in the U.S. and globally.
Steve Barger - KeyBanc Capital Markets, Inc.
I guess I just don't understand, you won the anti-dumping case and you're the dominant supplier in the U.S., so where does the price competition come from?
Robert J. Zalupski - Chief Financial Officer
There are others.
David M. Wathen - President, Chief Executive Officer & Director
Yeah. Other than those...
Robert J. Zalupski - Chief Financial Officer
And the restraining order is related to Chinese manufacturers. There's competitors outside of China that ask for minimal.
David M. Wathen - President, Chief Executive Officer & Director
People say that Australia and Italy are pretty hungry right now.
Steve Barger - KeyBanc Capital Markets, Inc.
Got it. The reason I got up back on actually was to ask you a question about the debt pay down, the slides say it's a priority.
But I'm just curious, what's the decision trigger for share buyback versus debt paid down? Is it purely quantitative or qualitative, or how does it work when you think about that capital allocation decision?
Robert J. Zalupski - Chief Financial Officer
I would say it's more qualitative and it really depends on our evaluation of share price at a point in time when we're in a window and able to buy shares back.
Steve Barger - KeyBanc Capital Markets, Inc.
Are you willing to talk about what factors go into your evaluation of share price?
Robert J. Zalupski - Chief Financial Officer
Not at this time. No.
Steve Barger - KeyBanc Capital Markets, Inc.
Okay. Thanks.
Operator
And it appears that there are no further questions at this time. Mr.
Wathen, I'd like to turn the conference back to you for any additional remarks.
David M. Wathen - President, Chief Executive Officer & Director
Thank you, everybody. We sure appreciate the interest.
I would leave with you with the thought that while it's tough out there, there are bright spots to go after, and we really keep after it. And I think there are enough bright spots in 2016 that we're going to look back on it that we like it.
So thank you. Stay tuned.
Thank you.
Operator
And that does conclude today's conference. Thank you for your participation.